Your Home Purchase

Purchasing a Home

When buying a home, it’s important to think carefully about your offering price—but also your offering terms. Most purchase offers define both. And in some cases, terms and conditions can represent thousands of dollars in additional value for buyers—or additional costs.

Terms may include inspections, requests for specific property repairs, or timing considerations, such as a conditional purchase clause (if, for example, you must first find a buyer for your current home).

DETERMINING A PRICESome buyers mistakenly believe there is a predetermined formula for offers—that offering prices should be X percent lower than the seller’s asking price or the amount they are really willing to pay.

In practice, your offer price actually depends more upon the basic laws of supply and demand. If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes even more. If demand is weak, then offers below the asking price may be in order.

HOW TO MAKE AN OFFERThe process varies by state. In most cases, you complete an offer that your representative presents on your behalf. The owner, in turn, may accept the offer, reject it or make a counter-offer.

Because counter-offers are common (any change in terms can be considered a “counter-offer”), it’s important that you remain in close contact with your representative during the negotiation process so that any proposed changes can be quickly reviewed.

INSPECTIONSInspections are common in residential realty transactions. Depending on your needs and where you live, they may include:

mold inspections

“green” issues, including energy efficiency and eco-friendliness

surveys to determine boundaries

appraisals to determine value for lenders

title reviews

structural inspections

Structural inspections are particularly important. During these examinations, an inspector evaluates the property for any material physical defects and whether expensive repairs and replacements are likely to be required in the next few years.

For a single-family home, these inspections often require two or three hours. You should plan to attend too. This is an important opportunity to examine the property’s mechanics (plumbing, wiring, etc.) and structure, ask the inspector questions and learn far more about the property than is possible with an informal walk-through.

Closing CostsClosing costs are simply the fees associated with 1) purchasing a home, 2) borrowing money, and 3) preparing paperwork to finalize the sale. Your total closing costs will vary depending on where your new home is located, what type of property you are buying, the price of your home and the complexity of the transaction.

It is extremely important that you work closely with your buyer’s representative in the early stages of your home search to estimate what these costs could be, since closing costs can easily represent thousands of dollars.

The main categories are:DISCOUNT POINTS TO BUY DOWN THE MORTGAGEIf you want to reduce the ongoing cost of your mortgage over the life of the loan, you’ll want to consider this optional fee. Amounts can vary significantly, from 0.5 to 3 points on the total mortgage amount. This is a one-time charge that is fully deductible as mortgage interest.COSTS FOR ORIGINATING THE MORTGAGEThis generally includes a variety of fees such as the loan origination fee, the appraisal fee and the cost of credit reports. Other related closing fees may include hazard and mortgage insurance, and interest accrued on the mortgage between closing date and the end of the month.TAXES AND OTHER LOCAL FEESCharges will vary according to local government requirements. Some may demand that property taxes be pro-rated according to when you officially own your home. You may also be required to pay personal property taxes, homeowner’s association dues, and other assessments that are specific to the area that you are moving into.DOCUMENTATION COSTSYou will have to pay for any research involving public records and title history for your new property. This insures that the title is unencumbered by other ownership claims or liens and can be delivered to you at closing. Other costs include recording and transfer fees, which cover legally recording the deed to your name.

While most buyers are usually fully aware of terms regarding price, closing date, and financial arrangements, there is a tendency to overlook much of the rest of the contract. However, since all the contract terms will be binding, it is important to understand what you are agreeing to before signing the contract. Not doing so can be a costly mistake, especially if there are problems or difficulties in the transaction.

WHEN AN OFFER BECOMES A CONTRACTA purchase contract is created when there is a “meeting of the minds” on all terms—when you and the seller have come to agreement and signed the offer form along with any counter-offers and addenda. Real estate contracts must be in writing; verbal contracts to purchase real estate cannot be enforced.

Some of the items that you may be agreeing to may include:

What personal property will be included or excluded from the sale.

Who will pay for required repairs or retrofits.

What the seller’s disclosure obligations will be.

What the seller’s obligation to maintain the property will be.

What the seller is warranting about the property.

What the buyer’s inspection rights will be.

What will happen in the event either party does not comply with the contract.

Whether or not the buyer can get out of the contract upon an attorney review and/or other contingencies.

What will the parties’ legal rights and attorney fee provisions be in the event of a breach of contract.

DO YOUR HOMEWORK IN ADVANCEIt is highly recommended that you read and review the pre-printed forms with your buyer’s representative before you write and sign a purchase offer. That way, once you are ready to present a bona-fide offer, your focus will be on the primary issues of price, terms, and closing date.

Reviewing and understanding the purchase contract form ahead of time can also help you strengthen your negotiating position, protect yourself from incurring unnecessary costs or problems, and gain a better understanding of what you will need to do to conclude the sale.